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Economic Insight

UK Business Confidence Monitor: National

An authoritative and authentic check on the nation's economic pulse

The latest Business Confidence Monitor (BCM) shows business confidence falling further. Difficult economic conditions continue, though there has been some easing in the political turmoil of the previous period, which seriously unsettled financial markets. As a result, some economic stability has been restored, even though September’s events have resulted in higher interest rates, taxes and government borrowing, and lower government spending. But the global economic background continues to look very challenging.

The survey results are based on 1,000 telephone interviews among ICAEW Chartered Accountants covering a range of UK sectors, regions and company sizes, ensuring a representative picture of the UK economy. The interviewing is continuous; these latest findings are based on the period 17 October to 16 December 2022.

Key points

  1. Confidence has again fallen sharply to a very low level by past standards, but it may have bottomed out, possibly as a result of less anxiety over economic policy, and indications of inflationary pressures easing a little. Among sectors, Construction, Property, Retail and Manufacturing are the least confident.
  2. However, domestic sales growth has stabilised after a period of recovery. Export sales growth is stronger than a year ago, helped by a weaker sterling. Both are expected to continue growing.
  3. Input prices and selling prices also continue to rise sharply, but expectations for the year ahead have softened. However, salary growth continues to accelerate, as expected.
  4. While labour market challenges have eased, financial challenges have risen and a marked slowdown in investment growth is anticipated.
  5. Access to capital is a prominent issue for Property and Construction companies; both sectors face severe difficulties with bank charges. Input price issues are worst for Retail and Construction companies, while IT companies face strong market competition, which seems to be impacting their expectations for selling price increases over the coming year. 
  6. All regions and types of companies show broadly similar trends, although UK-listed companies are a little less confident than non-UK listed and those that are privately owned.


  • During the survey period, recession became more likely in 2023 in both the US and Europe. Initially that seemed possible in China too, as Covid-related restrictions were reintroduced, but more recently those curbs have been completely removed – which carries its own risks.
  • In the UK, recently announced tax cuts were reversed; a new Prime Minister was appointed, and the reformed government announced that it would maintain tight fiscal discipline over the coming five years. Financial market confidence has broadly stabilised.
  • However, interest rates rose in November and December, and the Monetary Policy Committee (MPC) has indicated that monetary policy will also remain restrictive. Inflation remains high, while GDP is slowing and recession in the UK is also widely expected.

The economic situation remains challenging. Internationally, the Federal Reserve has tightened monetary policy, making a recession in the US in 2023 more likely. In Europe, central banks are similarly tending to tighten, adding to the pressure on companies and consumers. Russian gas supplies continued to diminish during the survey period, fueling inflation and hurting industrial output. Again, recession in 2023 looks probable, although events in Ukraine will clearly affect the severity and duration of that.

In China, the situation is very different. During the survey period the government attempted to tighten Covid-related restrictions, threatening economic growth. Since then, in the face of popular opposition, the restrictions have been removed, which creates the possibility of stronger consumer-led growth in 2023, unless infection rates rise to the point where confidence is harmed and another policy change is needed.  

At home, the survey period began with the new Chancellor of the Exchequer, Jeremy Hunt, reversing most of the September tax cuts, which helped to stabilise financial markets. Shortly after, Rishi Sunak replaced Liz Truss as Prime Minister, and in November the Autumn Statement signalled the government’s new intention of maintaining tight fiscal policy for the next five years. 

However, interest rates climbed further in November and December, and the MPC reasserted the principle that interest rate decisions will be focused on reducing inflation, which remained very high, at 10.7% in the 12 months to November, marginally down from 11.1% in October. Recently released data show a further small fall to 10.5% in December, and also a modest GDP increase of 0.1% in November following a 0.5% October rise. December was hit by strikes, which will have weakened GDP, and recession in 2023 alongside declining inflation are widely expected.  

Confidence overall

  • Business confidence has fallen to a low level by historical standards but has possibly stabilised during the survey period. The majority of sectors share in the decline.
  • Domestic sales continue to rise at a stable rate, and this is expected to be the case over the coming 12 months. Sectors most exposed to high interest rates are among the most cautious, such as Energy, Water & Mining.
  • Export sales growth has strengthened, probably helped by 2022’s sterling depreciation, but remains weaker than for domestic sales. Further growth is expected.

The Business Confidence Index declined once again in the survey period, to -23.4, one of the lowest readings on record, and reflecting both domestic political events and the challenging global economic environment. Most sectors share this decline, with Construction, Property, Retail & Wholesale, and Manufacturing the least confident. The first three of these are particularly susceptible to high interest rates, while Manufacturing companies are exposed to the slowdown in the global economy.

However, the week-on-week movements in the index suggest that confidence may have stabilised during the period at its new, reduced, rate. That would be consistent with the clear commitment of the new Prime Minister and Chancellor of the Exchequer to operate cautious tax and spending policies. However, with interest rates high and companies facing multiple domestic and international economic challenges, the situation remains fragile.

One reason for caution is that the survey confirms that domestic sales growth continues to be stable rather than accelerating. Companies reported a 5.9% rise over the past 12 months, which is close to earlier results during 2022. The expectation is that the next 12 months will see a similar increase. Retail & Wholesale, Property and Finance companies are among the most cautious, probably reflecting the negative impact on demand of higher interest rates. Energy, Water & Mining companies also expect slower sales growth, probably stemming from the higher selling prices being charged to customers.

Export sales growth has strengthened, moving into line with companies’ expectations reported earlier in 2022. The increase on 12 months earlier is 3.9%, so weaker than for domestic sales. The improvement probably partly reflects the decline in sterling during 2022. Companies anticipate a similar increase over the next 12 months, of 4.4%.

Business challenges

  • Labour market challenges have eased, but still remain high, with both availability of non-management skills and staff turnover problems remaining widespread.
  • Transport problems also remain elevated when compared with historical norms, further reflecting recruitment difficulties in that sector.
  • Financial challenges are rising. In particular, access to capital is a very big issue for Property companies. Both they and Construction companies face severe problems with bank charges.

The availability of non-management skills, and staff turnover, remain the most widespread growing challenges faced by companies. The former is a more pressing issue for 37% of companies, while 36% cite the latter. However, in both cases the incidence is a little lower than in recent survey periods. This probably reflects a combination of problems being addressed, and companies are also likely to be feeling less pressure to recruit given the increasingly uncertain economic environment.

Another challenge that rose sharply in significance during the early months of the Covid recovery, transport problems, remains elevated but stable, and just ahead of availability of management skills. To some degree, transport problems themselves reflect skill shortages, such as the recruitment of qualified drivers.

Two other growing challenges are less widespread, but are increasing greatly in significance: access to capital and bank charges. Both of these are particularly prevalent in the Construction sector, with 20% of companies being increasingly challenged by access to capital and 24% citing bank charges. Access to capital is also an especially prominent issue in the Property sector. Indeed, 33% of Property businesses cite this as a growing challenge, by far the highest rate across all sectors. There is considerable anecdotal evidence of Property companies finding it difficult to raise funds or borrow at acceptable rates, as a result of declining real estate prices and higher interest rates. The possibility of problems in these sectors impacting others may become an important issue in 2023.


  • Annual input price inflation has once again climbed to a record high. However, companies expect a softer rise in input prices over the next year.
  • A similar story is apparent for selling prices. Another record high has been reached for the rate of increase. But with input cost pressures predicted to ease, businesses expect more modest rises in selling prices in the year ahead.
  • Businesses in Construction and Retail & Wholesale anticipate the fastest rises in input costs over the next 12 months. Companies in Transport & Storage, along with Manufacturing & Engineering, plan the steepest increases in selling prices.

Annual input price inflation continues to climb for businesses. In the 12 months to the latest survey results, companies saw input prices rise by 5.8%. This is the sharpest increase since the start of the survey in 2004, marking the third successive quarter in which input price inflation has reached a record high.

Underpinning this is the wide array of supply-side problems that businesses continue to face, with the surge in global energy prices and ongoing supply-chain problems all likely to be pushing up costs. A more difficult trading environment as a result of Brexit may also be increasing import costs for companies. But while these issues are unlikely to dissipate immediately, it is possible that input price inflation has now reached a peak. Although still elevated when compared with historical norms, companies expect annual input price inflation to soften to 4.9% over the next 12 months.

Across sectors, businesses in Manufacturing & Engineering and Transport & Storage are facing the strongest input cost pressures. The former is among the most import-intensive sectors in the UK, while the latter is likely to have been particularly impacted by the sharp increase in fuel costs. However, over the next year, businesses in Construction and Retail & Wholesale expect faster input price inflation than those in other sectors.

The steep rises in input costs help to explain why selling prices are also rising at a record rate. Indeed, businesses have lifted prices charged to customers by 3.8%, surpassing the previous high of 3.3%, reported in the previous survey period. However, much like the outlook for input price inflation, the pace of selling price rises is expected to ease over the next year.

Indeed, companies in all but one sector (Business Services) expect to moderate selling price rises in the 12 months ahead. Transport & Storage and Manufacturing & Engineering expect the biggest increases, while Property, Banking, Finance & Insurance, and IT & Communications plan the smallest rises. For the latter, challenges relating to marketplace competition may be a factor restricting the increase in output prices.


  • Annual total salary growth has reached a record pace. And companies anticipate a slightly sharper rise in the coming 12 months.
  • The rise in salaries reflects not only the impact of inflation on wage claims, but also the widespread problems businesses continue to face relating to the availability of non-management skills and staff turnover.  
  • That said, there are now signs that skill challenges are beginning to ease gently after surging dramatically during 2021 and 2022. This is probably linked to plans for slower employment growth in the year ahead.

High input price inflation for businesses is being paralleled by sharp increases in wage costs. Indeed, annual total salary growth in the latest survey period stands at 4.0%, the highest rate since the start of the survey in 2004.

However, unlike with input price inflation, businesses do not plan to ease the pace of wage growth over the next year. A further 4.1% rise is expected, which again would mark an historic high. Salary growth has been strongest in the Transport & Storage and Construction sectors. The former of these also plans the fastest rise in salaries over the next 12 months, closely followed by companies in Business Services and Property.

The high rate of inflation is one major factor pushing up wages, but a related explanation is the persistent tightness in the UK labour market. The availability of non-management skills continues to be the most widespread growing challenge for businesses. One factor behind this is that fewer UK residents are actively looking for work than before the coronavirus pandemic, with a hike in early retirement and more widespread health problems being identified as explanations for this. The availability of non-management skills as a growing challenge is most widespread in Construction and Transport & Storage. This, in turn, helps to explain why the same two sectors have seen average total salaries rise most sharply.

However, although the proportion of companies citing the availability of non-management skills and staff turnover remains high by historical norms, these issues are starting to ease for businesses. A likely part of the explanation is that companies plan to moderate employment growth over the next 12 months, reflecting caution about financial prospects and future growth in demand.


  • Softer demand conditions and very strong input price inflation help to explain why profits growth has slowed. Companies expect a continuation of this in the year ahead.
  • High stock levels will also be adding stress to company finances. The proportion of businesses with above-normal levels of raw materials is very high by historical standards.
  • Against that backdrop, plans for both capital investment and Research & Development (R&D) budgets are very subdued, a concerning trend given the impact this may have on future productivity performance.

Largely due to the rise in both input and wage costs, annual profits growth has slowed over the course of the past year, and now stands at 4.3% in the latest survey. Businesses expect this trend to continue in the coming year, with profits increasing at the more modest pace of 3.8%.

In some sectors, high stock levels are adversely impacting company finances. The proportion of companies with above-normal levels of raw materials and components (25.5%) is almost double the historical average for UK businesses. A broadly similar story is apparent for work in progress and finished goods. Part of the explanation here is the weaker demand environment, along with businesses stockpiling raw materials to protect themselves against any near-term surges in commodity prices.

The weaker outlook for profits, combined with a marked fall in business confidence, underpins a planned slowdown in capital investment growth. The latest survey results show a 3.2% annual rise in spending on capital assets over the past 12 months, but only a 1.5% increase planned in the 12 months ahead. Except for the sharp contractions during the pandemic, this would be the slowest rise in capital investment in over a decade.

The same can also be said of R&D budgets. After rising by 2.2% in the latest survey period, growth is set to slow to just 1.4%, which would mark the weakest rise in over 10 years. These plans for both capital spending and R&D budgets are concerning, particularly given their importance to future productivity gains and, thus, competitiveness in global markets. This has become more crucial for businesses as they deal with record high input price inflation and challenges in the post-Brexit trading environment.

Confidence by sector

  • The Business Confidence Index is firmly negative in most sectors. Sentiment is weakest in Construction, Property, Retail & Wholesale and Manufacturing & Engineering, and has worsened sharply in IT & Communications.
  • Domestic sales growth has been particularly slow in Manufacturing & Engineering and Retail & Wholesale. The former of these has also seen very modest export growth, with only Banking, Finance & Insurance reporting a smaller rise.
  • Construction, Manufacturing & Engineering and Retail & Wholesale face widespread problems relating to customer demand. Access to capital and bank charges are major issues in Property. The weakening of business confidence in IT & Communications may stem from rising marketplace competition.

The Business Confidence Index is in negative territory across all sectors. On balance, businesses in Construction, Property, Retail & Wholesale and Manufacturing & Engineering are least confident. The confidence index has also weakened markedly in Transport & Storage and IT & Communications when compared with recent quarters.

In the latest survey period, annual growth in domestic sales was slowest in the Manufacturing & Engineering (3.9%) and Retail & Wholesale (4.8%) sectors. The impact of high inflation on real incomes is likely to be a major factor weighing on both sectors, particularly for Retailers. And for the year ahead, companies in Property and Retail & Wholesale, along with Energy, Water & Mining and Banking, Finance & Insurance, have the weakest expectations for domestic sales growth.

In terms of exports, the Manufacturing & Engineering (2.3%) sector has seen growth dip considerably, with only Banking, Finance & Insurance (2.2%) reporting a slower outturn in the latest survey period. Manufacturers expect to continue underperforming in the 12 months ahead; indeed, their export prospects are weaker than in many other sectors, after Construction and Transport & Storage. This clearly relates to the current slowdown in global economic activity, and comes in spite of the weakening in sterling during 2022.

The decline in company confidence is also closely associated with the differing input cost pressures that companies are facing. In the 12 months to the latest survey period, businesses in Manufacturing & Engineering, Construction, Retail & Wholesale and Transport & Storage have all seen input prices accelerate faster than the UK average, probably reflecting the sharp increases in fuel costs due to the Ukraine-Russia war.

Access to capital has surged as a challenge in the Property sector over recent surveys, with lenders and investors becoming very wary of the sector in the light of rising interest rates. The sector also has the highest proportion of companies dealing with problems relating to bank charges.

It is also striking how sharply business confidence has weakened in IT & Communications, despite businesses in this sector having the strongest outlook for domestic sales growth. Marketplace competition is now a much more widespread issue in IT & Communications than elsewhere, probably reflecting new and potentially disruptive market entrants. Consequently, IT & Communications, along with Banking, Finance & Insurance and Property, plan the slowest rises in selling prices over the next year. Staff turnover is also a more prominent issue in IT & Communications than in other sectors.

Confidence by region and nation

  • The Business Confidence Index is in negative territory across all parts of the UK. The index is weakest in Yorkshire & Humberside and Scotland. London’s confidence index has fallen at the sharpest rate.
  • Domestic sales and employment growth have both been subdued in Yorkshire & Humberside. The same region also has one of the strongest outlooks for input price inflation, behind only the North East. Welsh businesses are probably deriving some modest confidence from strong export growth.
  • Staff turnover is a widespread problem in Scotland and Yorkshire & Humberside. The latter is also particularly challenged by the availability of non-management skills. Access to capital is a particularly prevalent issue in London.

The Business Confidence Index has weakened for the majority of UK nations and regions, although the rates of decline vary considerably. The least optimistic are businesses in Yorkshire & Humberside and in Scotland. The sharpest decline, when compared with the previous survey period, is in London. The weakening of business confidence in IT & Communications and in Property, important sectors in the capital, may be part of the reason for this. London also has, by far, the highest proportion of companies increasingly challenged by access to capital: a problem particularly affecting Property companies, which tend be headquartered in London.

With the exception of the West Midlands, domestic sales growth is slowest in Yorkshire & Humberside. This is also true for employment. However, businesses in the region expect a faster rise in domestic sales over the next year, although employment growth will remain among the weakest across the UK. Expectations of strong input price inflation could also be weighing down business confidence in Yorkshire & Humberside. In the 12 months ahead, only companies in the North East anticipate a faster rise in input costs.

Export growth has been strongest in Wales, something that may have been a modest source of confidence for the nation’s export-intensive Manufacturing sector. This may help to explain why Wales, along with the South West, is the only part of the UK where the confidence index has improved in comparison with the previous survey period. A strong outlook for domestic sales and profits growth may be reasons behind the South West’s slight improvement.

Staff turnover is a more widespread issue for Yorkshire & Humberside and Scottish companies than for those anywhere else in the UK. The availability of non-management skills is also most prevalent as a growing challenge in Yorkshire & Humberside. This issue continues to be elevated in Manufacturing & Engineering, a sector that has a large presence in the region.

Confidence by business size

  • The Business Confidence Index has weakened across all company types, but especially for UK-listed companies.
  • Non-exporting businesses are slightly less confident than exporting companies. Exporters may be drawing some confidence from the depreciation of sterling relative to other major currencies.
  • Access to capital is a particularly widespread problem for companies listed in the UK, while Small and Medium Enterprises (SMEs) are more troubled by this issue than larger private companies. Financial challenges such as access to capital and bank charges are much less prominent for companies listed outside the UK.

The Business Confidence Index has weakened across all different company types. However, the magnitude of the fall varies, with sentiment for UK-listed companies seeing the most dramatic decline.

The Business Confidence Index is also lower for non-exporting businesses than for exporting ones. It is possible that exporters are deriving some confidence from the depreciation of sterling relative to the dollar, something that makes their goods and services more competitive in global markets.

The variation in sales growth across different company types is marginal. This is also true for employment, costs and investment. However, there are some differences in the challenges businesses face, which, in turn, helps to explain the variations in the confidence index. In particular, UK-listed businesses are being especially challenged by access to capital, with 26% of businesses citing this issue. And among private companies, this issue is a growing challenge for 23% of SMEs and 17% of large private companies.

Furthermore, companies listed outside the UK are much less troubled by access to capital than UK-owned companies. This is also the case for bank charges as a growing challenge. The recent sharp increase in UK interest rates and difficulties in domestic financial markets probably explains this.

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